22-04-2013

Mutual Investment Protection In Albania And Cyprus Through Cypriot Companies

Authors

  • Angelos Exadaktylos, Attorney at law - Legal Consultant
    Associate at Papantoniou & Papantoniou LLC, Member of the European Law Firm,
    Advocates and Legal Consultants

What is the relationship between Cyprus and Albania?

The rapid economic development of Albania has brought the country closer to the European Union business market. By realizing the potential benefits that may gain by enhancing the relationship between every member state, Albania is becoming the next prospective EU partner. Cyprus may become one of the most important business partners of Albania in the EU. Cyprus corporate legal regime, more specifically the Cyprus Holding Companies, may assist the Albanian investors on investing in all the countries of the EU including the Arabic countries. In addition, the development of the Energy sector in Cyprus has brought many investors from around the world on developing their businesses through Cypriot Companies. The relationship between Cyprus and Albania has been growing and developing for decades now on a political, social and economical level. One of the most important aspects of this relationship is the promotion of the investment sector where both countries have agreed to co-operate on easing and protecting the path of mutual investment. On the 6th of August 2010 Cyprus and Albania have signed the “Agreement on the Promotion of Mutual Protection of Investments between the Republic of Cyprus and the Republic of Albania.” As a result, this opened a new chapter between the two countries.

What is the aim of the “Agreement on the Promotion of Mutual Protection of Investments between the Republic of Cyprus and the Republic of Albania”?

In accordance with Article 2 and 3 of the Agreement the aim is to protect and promote investments between the two countries by providing all the means for creating favorable conditions to investors willing to invest in both countries. This Agreement applies to investments that have been made before or after the signing, but not to disputes that have arisen before.

Which are the most important parts and advantages of the Agreement?

Through the Agreement, citizen investors of each contracting country have the chance to enjoy different conveniences on their business activities.The most important are the following:

  • When a Contracting Country Admits an investment in its territory, it shall, in accordance with its laws and regulations, grant the necessary permits and licenses required for such investment and with the carrying out contracts for technical, commercial or administrative assistance.
  • Each Contracting Party shall endeavor to issue the necessary authorizations concerning the activities of consultants and other qualified persons, regardless of their nationality.
  • All the investments made in the territory of both Countries shall enjoy fair and equitable treatment, without prejudice or any other kind of discrimination. In other words the investors of the other Country shall be treated the same way as the national investors of the hosting Country.
  • Each Country shall in its territory accord to investors of the other Country, as regards their management, maintenance, use, enjoyment, expansion or disposal of the investment, treatment no less favorable than that accorded to its own investors or to investors of any third State whichever is more favorable to the investor concerned.

What are the main protection measures of the investment that the Agreement stipulates?

The Agreement contains other kind of protection measures from governmental expropriation or compensation for losses. These safeguards guarantee the shield of the investment from any unpredictable events that could be detrimental to the investors. For example in case of conflict, nationalization, revolution or any other similar unpredictable event that would be detrimental against the investment, the Country that is hosting it is under obligation to provide any judicial and non-judicial means in order to provide an adequate and effective compensation or restitution. This must be made on the basis of a non-discriminatory, fair and equitable manner.

Does the Agreement contain any provisions when disputes arise?

Yes, the Agreement includes provisions on settlement of disputes between the Contracting Country and Investors of the other contracting party (Article 11). The Agreement includes different timelines and procedures that may resolve any disputes that might arise in regards the investments. Some of the procedures that this agreement proposes are through the Arbitral Tribunal of the Chamber of Commerce in Stockholm, the Arbitral Tribunal of the International Chamber of Commerce in Paris and the Investment Centre for the Settlement of Investment Disputes (ICSID). Also, the competent courts of the Country in whose territory the investment was made may be involved to resolve the dispute.

How can a Cyprus Company help the investors to effect an investment in the Contracting Countries?

Cyprus as a member of the European Union is emerging as one of the most popular jurisdictions to investors on registering and operating an International Business Company. Investors find that the distinctive tax advantages in conjunction with the EU membership and OECD compliance history has brought persuasive reasons to set up a Cyprus Company. Through the Cyprus Company the Albanian or Cypriot Businessman may use it as a vehicle in order to execute their investments in each Country, in a tax efficient and flexible manner. Throughout the Agreement that Albania and Cyprus signed, the setting up of a Cypriot Company becomes a compelling reason to accomplish their investment objectives. It is also undisputed that a Cypriot Company opens the way to Europe for business and this would be an enormous advantage for the Albanian investor. As a result of all the above, Cyprus is emerging into the most favorable holding company jurisdiction in Europe and is becoming a serious competitor to other popular jurisdictions such as the Netherlands, Switzerland, Luxembourg and many others. In addition Cyprus has adopted most of the compliance measures on anti-money laundering. Its compliance system was four times assessed by the Moneyval Committee of the Council of Europe in April 1998, September 2001, April 2005 and in June 2010. The subsequent evaluation reports published in June 1998, June 2002, March 2006 and in September 2011, respectively, concluded that Cyprus adopted measures in line with international standards and should be acclaimed for the very comprehensive legal framework it managed to set up. All the above make Cyprus a trustworthy country and partner of the European Union and provides the safety harbor for investors who wish to establish their businesses models in and through Cyprus.

What are the advantages of a Cyprus Company?

There are plenty advantages of the Cyprus Company. However the main ones, which are mostly company function related, are the following:

  • Fast and simple procedures on setting-up and administrating the Company
  • Throughout the Agreement of Protection of Investments Albanian companies may invest and establish business in Cyprus on equal terms with local investors
  • Cyprus has signed a considerable number of Double Taxation Treaties with numerous countries, to avoid the double taxation of income earned in any of the two contracting states.
  • The Cyprus Company can be listed in the Cyprus Stock Exchange and in any other International Stock Exchange.

Furthermore the Agreement between Albania and Cyprus (Article 7) includes provisions which imposes to the Contracting Countries the guarantee to investors the free transfer of all payments relating to their investment and such transfers include: net profit, capital gains, dividends, interest, royalties, investment returns, earnings of personnel and any other income that derives from the investment.

What are the Tax Advantages of a Cyprus Company?

It is known and has been repeatedly stated that Cyprus is one of the most attractive tax jurisdictions that fully complies with the EU, OECD, FSF and FATF demands. Its EU accession, the enactment of the new tax legislation in 2004 and the abolition of the “offshore” label have contributed to the development and popularity of Cyprus’s Tax Regime.    The Tax advantages that a Cyprus Company may offer, without being exhaustive, are the following:

  • 0% tax on Dividends received by a Cyprus Company.
  • 0% withholding tax on Dividend payments by the Cyprus Company to its foreign shareholders.
  • 0% taxation on profits from trading companies in shares and other securities; no capital gains tax on the sale or transfer of shares and on the transfer of immovable property owned by a Cyprus Company abroad.
  • 0% taxation for NON-tax resident companies who are engaged in international trading, provided that their control and management is outside Cyprus.
  • 10% taxation for tax resident companies, which is one of the lowest in Europe.
  • No estate duty is payable on the inheritance of shares after the death of a shareholder.
  • Provision of unilateral Tax Credit Relief on any tax paid abroad, regardless of whether Cyprus has signed a Double Taxation Treaty or not with the other foreign country.
  • International Cyprus Trusts may be established holding shares or to be used as a vehicle for a tax structure. International trusts do not pay any taxation on their profits.
  • Royalties arising from the use of an asset in Cyprus are subject to 10% withholding tax.
  • There are no withholding taxes on royalties arising from sources outside  Cyprus.
  • If a Cyprus holding company is liquidated and distributes its assets to its NON-Cyprus resident shareholders, then the distribution is done without any taxation.
  • The Cyprus law provides flexibility on re-domiciliation of foreign companies in Cyprus and Cyprus Companies to be re-domiciled abroad. For example, foreign holding companies may move their holding companies in Cyprus without disturbing their overall structure.

Which conclusions arise from this Mutual Agreement on Protecting Investments?

The conclusions that arise are that Cyprus and Albania are two countries that may benefit intensely from each other. Albania as an emerging economy may learn a lot from Cyprus as an International Business Center. The establishment of investment relationships between the countries through corporate vehicles may bring the know-how to Albania on many important aspects of the European Business field. The maximization of profits the tax incentives and all the other advantages that Albanian investors may gain from establishing a Cyprus Company are limitless. This close co-operation between the two countries may bring fruitful collaborations and open a new chapter for an economically promising country such as Albania.

GREEK LAW DIGEST REPUBLIC OF ALBANIA MINISTRY OF INTEGRATION Union of Chambers of Commerce and Industry of Albania
Nomiki Bibliothiki ALBANIA INVESTMENT DEVELOPMENT AGENCY Foreign Investors Association of Albania
     

 

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